Approximately $344.5 Million of Structured Securities Affected
New York, June 24, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of three classes,
confirmed two classes and affirmed nine classes of Morgan Stanley Dean
Witter Capital I Inc., Commercial Mortgage Pass-Through
Certificates, Series 2002-HQ as follows:
Cl. A-3,Affirmed at Aaa (sf); previously on Mar
26, 2002 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Jul 19,
2005 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Mar 30,
2007 Upgraded to Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on Mar 30,
2007 Upgraded to Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on May 14,
2008 Upgraded to Aaa (sf)
Cl. F, Affirmed at Aaa (sf); previously on May 14,
2008 Upgraded to Aaa (sf)
Cl. G, Affirmed at Aa2 (sf); previously on May 14,
2008 Upgraded to Aa2 (sf)
Cl. H, Confirmed at Baa1 (sf); previously on May 12,
2011 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to Ba3 (sf); previously on May 12,
2011 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to B2 (sf); previously on May 12,
2011 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to Caa1 (sf); previously on May 12,
2011 B3 (sf) Placed Under Review for Possible Downgrade
Cl. M, Confirmed at Caa3 (sf); previously on May 12,
2011 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. N, Affirmed at C (sf); previously on Nov 18,
2010 Downgraded to C (sf)
Cl. X-1, Affirmed at Aaa (sf); previously on
Mar 26, 2002 Definitive Rating Assigned Aaa (sf)
The downgrades are due to higher than expected losses from interest shortfalls
from one specially serviced loan. In recent months interest shortfalls
have increased due to the servicer, Berkadia Commercial Mortgage
LLC, recovering advances on the specially serviced loan, which
has been declared non-recoverable.
The affirmations are due to key parameters, including Moody's
loan to value (LTV) ratio, Moody's stressed debt service coverage
ratio (DSCR) and the Herfindahl Index (Herf), remaining within acceptable
ranges. Based on our current base expected loss, the credit
enhancement levels for the affirmed classes are sufficient to maintain
their current ratings.
On May 12, 2011 Moody's placed five classes on review for
possible downgrade due to concerns about interest shortfalls. This
action concludes our review.
Moody's rating action reflects a cumulative base expected loss of
2.8% of the current balance. At last review,
Moody's cumulative base expected loss was 2.0%.
Moody's stressed scenario loss is 5.3% of the current
balance. Moody's provides a current list of base and stress
scenario losses for conduit and fusion CMBS transactions on moodys.com
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for investment grade classes could decline below the current levels.
If future performance materially declines, the expected level of
credit enhancement and the priority in the cash flow waterfall may be
insufficient for the current ratings of these classes.
Moody's forward-looking view of the likely range of performance
over the medium term. From time to time, Moody's may,
if warranted, change these expectations. Performance that
falls outside the given range may indicate that the collateral's credit
quality is stronger or weaker than Moody's had anticipated when the related
securities ratings were issued. Even so, a deviation from
the expected range will not necessarily result in a rating action nor
does performance within expectations preclude such actions. The
decision to take (or not take) a rating action is dependent on an assessment
of a range of factors including, but not exclusively, the
Primary sources of assumption uncertainty are the current sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011 The hotel and multifamily sectors are continuing to show
signs of recovery, while recovery in the office and retail sectors
will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The primary methodology used in this rating was: "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
Other supporting methodologies include: "CMBS: Moody's Approach
to Rating Large Loan/Single Borrower Transactions" published in July 2000.
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.50 which is used for both conduit and fusion
transactions. Conduit model results at the Aa2 (sf) level are driven
by property type, Moody's actual and stressed DSCR,
and Moody's property quality grade (which reflects the capitalization
rate used by Moody's to estimate Moody's value). Conduit
model results at the B2 (sf) level are driven by a paydown analysis based
on the individual loan level Moody's LTV ratio. Moody's
Herfindahl score (Herf), a measure of loan level diversity,
is a primary determinant of pool level diversity and has a greater impact
on senior certificates. Other concentrations and correlations may
be considered in our analysis. Based on the model pooled credit
enhancement levels at Aa2 (sf) and B2 (sf), the remaining conduit
classes are either interpolated between these two data points or determined
based on a multiple or ratio of either of these two data points.
For fusion deals, the credit enhancement for loans with investment-grade
credit estimates is melded with the conduit model credit enhancement into
an overall model result. Fusion loan credit enhancement is based
on the credit estimate of the loan which corresponds to a range of credit
enhancement levels. Actual fusion credit enhancement levels are
selected based on loan level diversity, pool leverage and other
concentrations and correlations within the pool. Negative pooling,
or adding credit enhancement at the credit estimate level, is incorporated
for loans with similar credit estimates in the same transaction.
Moody's uses a variation of Herf to measure diversity of loan size,
where a higher number represents greater diversity. Loan concentration
has an important bearing on potential rating volatility, including
risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 5 compared
to 7 at Moody's prior review.
In cases where the Herf falls below 20, Moody's also employs
the large loan/single borrower methodology. This methodology uses
the excel-based Large Loan Model v 8.0 and then reconciles
and weights the results from the two models in formulating a rating recommendation.
The large loan model derives credit enhancement levels based on an aggregation
of adjusted loan level proceeds derived from Moody's loan level
LTV ratios. Major adjustments to determining proceeds include leverage,
loan structure, property type, and sponsorship. These
aggregated proceeds are then further adjusted for any pooling benefits
associated with loan level diversity, other concentrations and correlations.
Moody's ratings are determined by a committee process that considers
both quantitative and qualitative factors. Therefore, the
rating outcome may differ from the model output.
The rating action is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
monitors transactions on a monthly basis through two sets of quantitative
tools -- MOST® (Moody's Surveillance Trends) and CMM
(Commercial Mortgage Metrics) on Trepp -- and on a periodic
basis through a comprehensive review. Moody's prior full
review is summarized in a press release dated November 18, 2010.
Please see the ratings tab on the issuer / entity page on moodys.com
for the last rating action and the ratings history.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
As of the June 15, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 60% to $344.5
million from $845.9 million at securitization. The
Certificates are collateralized by 36 mortgage loans ranging in size from
less than 1% to 33% of the pool, with the top ten
non-defeased loans representing 66% of the pool.
Seven loans, representing 16% of the pool, have defeased
and are secured by U.S. Government securities. Defeasance
at last review represented 27% of the pool. The pool contains
one loan with an investment grade credit estimate, representing
32% of the pool.
Nine loans, representing 20% of the pool, are on the
master servicer's watchlist. The watchlist includes loans
which meet certain portfolio review guidelines established as part of
the CRE Finance Council (CREFC) monthly reporting package. As part
of our ongoing monitoring of a transaction, Moody's reviews the
watchlist to assess which loans have material issues that could impact
Six loans have been liquidated from the pool, resulting in a realized
loss of $6.7 million (13% loss severity).
Currently one loan, representing 1% of the pool, is
in special servicing. Moody's estimates an aggregate $3
million loss for that specially serviced loan (68% expected loss).
Moody's has assumed a high default probability for four poorly performing
loans representing 8% of the pool and has estimated an aggregate
$4 million loss (15% expected loss based on a 50%
probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 74%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 74% compared to 81%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 12.3% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 9.0%.
Excluding special serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.46X and 1.53X, respectively,
compared to 1.35X and 1.40X at last review. Moody's
actual DSCR is based on Moody's net cash flow (NCF) and the loan's
actual debt service. Moody's stressed DSCR is based on Moody's
NCF and a 9.25% stressed rate applied to the loan balance.
The loan with a credit estimate is the Woodfield Mall Loan ($115.2
million -- 33%), which represents a participation
interest in a $230.4 million first mortgage loan.
The loan is secured by the borrower's interest in a 2.2 million
square foot super regional shopping center located 25 miles northwest
of downtown Chicago in Schaumburg, Illinois. Shadow-anchored
tenants include Sears, Macy's, JC Penny, Lord
and Taylor, and Nordstrom. As of December 2010, in-line
occupancy was 88% compared to 93% at last review.
The borrower is a joint venture between the California Public Employees'
Retirement System and General Motors Pension Trust. The property
is also encumbered by a $38.1 million B Note which is held
outside the trust. Moody's current credit estimate and stressed
DSCR are Aaa and 1.92X, respectively, compared to Aaa
and 1.97X at last review.
The top three conduit loans represent 20% of the pool balance.
The largest loan is the CBL Portfolio Loan ($34.6 million
-- 10%), which is secured by three shadow anchored
retail properties totaling 617,000 square feet. The properties
are Willowbrook Plaza (Houston, Texas); Massard Crossing (Fort
Smith, Arkansas); and Pemberton Plaza (Vicksburg, Mississippi).
As of June 2010, the portfolio was 85% leased, essentially
the same at last review. Performance has increased since last review
due to increased revenues. Moody's LTV and stressed DSCR are 93%
and 1.16X, respectively, compared to 105% and
1.03X at last review.
The second largest loan is the Denver West Village Loan ($21.2
million - 6%), which is secured by a 310,000
square foot power center located in Lakewood, Colorado. The
center is anchored by United Artists Theaters, Ultimate Electronics
and Bed Bath & Beyond. As of June 2010, the center was
99% leased compared to 94% at last review. Performance
has improved due to higher revenues. Moody's LTV and stressed DSCR
are 55% and 1.93X, respectively, compared to
63% and 1.68X at last review.
The third largest loan is the Armstrong Corporate Park 2 & 4 Loan
($14.4 million - 4%), which is secured
by a 152,000 square foot office property located in Shelton,
Connecticut. The property's largest tenant, Lifecare
Inc (37% NRA), renewed it's lease until 2018 at the same
rental rate. As of December 2010, the property was 73%
leased compared to 70% at last review. There is a large
risk of rollover as 56% of the net rentable area (NRA) expires
within one year. Moody's LTV and stressed DSCR are 139%
and 0.78X, respectively, compared to 107% and
1.01X at last review.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Structured Finance Group
Moody's Investors Service, Inc.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service, Inc.
Moody's Investors Service, Inc.
Moody's Downgrades Three, Confirms Two and Affirms Nine CMBS Classes of MSDWC 2002-HQ
250 Greenwich Street
New York, NY 10007